Oct. 17 (Bloomberg) -- Fortress Investment Group LLC turned
bullish on China’s yuan and equities, after betting on declines
earlier in the year, as it predicts the government will arrest a
seven-quarter slowdown in the world’s second-largest economy.

China showed signs of “stabilization and modest
improvement” last month and pro-growth measures are likely once
the nation’s new leadership is appointed in November, Adam
Levinson, chief executive officer of the hedge fund’s Singapore
unit and manager of its Asia Macro Fund, said in an interview
yesterday. Fortress manages $47.8 billion of assets globally.

“We covered our positions related to Chinese shorts and
are turning the other way,” Levinson, 42, said in a conference
room at the fund’s office in the Southeast Asian city. “Policy
makers are more likely to do something in the near term.”

Levinson’s shift comes at a time when the most accurate
forecasters for China’s currency and equities predict declines.
A report tomorrow may show gross domestic product growth slowed
to 7.4 percent last quarter based on a Bloomberg survey of
economists, underscoring the tasks for the government after the
Communist party’s once-in-a-decade leadership transition.

The yuan touched a 19-year high of 6.2530 per dollar today.
The currency will slip to 6.3 this quarter, according to Credit
Agricole CIB and BNP Paribas SA, which had the best estimates
for the last six quarters as measured by Bloomberg Rankings.
Haitong Securities Co. strategist Chen Ruiming, who correctly
predicted on Aug. 1 the stock index would fall below the 2,000
level, said this month the measure is poised to drop to 1,800
this year.

Forwards Advance

The 12-month non-deliverable yuan forwards climbed 0.07
percent to 6.3543 per dollar in Hong Kong, a 1.5 percent
discount to the onshore rate, data compiled by Bloomberg show.
The discount widened to as much as 2 percent on Oct. 3.

The Shanghai Composite Index tumbled 15 percent from its
2012 high to 2,086.17 on Sept. 28, the most among benchmark
equity gauges in 21 developing nations tracked by Bloomberg. The
index rose 0.2 percent to 2,103 today.

China’s exports and money supply grew more than forecast in
September, while home prices rose for a fourth month, official
figures show. Total social financing including loans, bond and
stock sales jumped 33 percent to 1.65 trillion yuan ($264
billion) in September from August, according to data from the
People’s Bank of China.

“Weeks ago, the forwards were pricing in a reasonable
depreciation and people were very negative because the export
channel was weak,” said Levinson. “The currency was likely to
weaken in line with that. We see that adjustment and we will
continue to see expectations around the currency re-priced
through year-end.”

Yuan to Gain

The yuan’s strength will continue this year, he said
without giving a forecast.

“We are going to have a lot of information in the next six
to seven weeks including the configuration of the new
leadership,” the fund manager said. “We are very clear about
this quarter and we may extend our longs into next two quarters.
It’s a cyclical story.”

Levinson, who joined Fortress in 2002, serves on the firm’s
management committee. He was previously a fund manager at Paul
Tudor Jones’s Tudor Investment Corp. and a proprietary trader at
Goldman Sachs Group Inc., spending nine years in the bank’s Hong
Kong, Tokyo and London offices managing portfolios focused on
Group-of-10 and emerging-market risk, according to an October
statement from the company.

Banks, Property

The Fortress Asia Macro Fund handed investors a net 10.7
percent return as of end-September, according to its statement.
That compared with 2.2 percent gain in the Eurekahedge Index
that tracks 205 macro funds worldwide.

Levinson said his fund likes Chinese banks, property
companies and some infrastructure stocks. Fortress also favors
government bonds from Malaysia, South Korea, Thailand, and India
that continue to receive “very powerful flows” from investors
including sovereign funds, he said.

Emerging-market bond funds have attracted $41 billion this
year through Oct. 10, compared with the $17.3 billion for all of
2011, according to data research firm EPFR Global. Malaysia,
South Korea and Thailand count China as the top destination for
their exports.

India’s sovereign debt is attractive as the nation’s
central bank is likely to succeed in cooling inflation “over
the course of next year,” Levinson said. Asian central banks
will probably lower borrowing costs to counter slower growth,
which will benefit government debt, he said.

“Asia generally is unlikely to surprise significantly in
growth upside,” he said. “So Asian fixed-income markets remain
very attractive. It’s a premature call to end the easing
cycle.”